Power of Sale: What Are Your Rights When a Lender Sells Your Home?

By Sawyer Fobert

Facing a Power of Sale is one of the most stressful experiences a homeowner can go through. When a borrower defaults on their mortgage, the lender has the right to sell the property to recover the money owed under the mortgage. A common concern among homeowners is whether the lender is required to sell the property for the highest possible price, and whether the homeowner can stop or challenge the sale if they believe the property is being sold for less than its fair market value. This article explains the lender’s legal obligations and the limited circumstances where a homeowner may stop or challenge a sale.

Does the lender have to sell the property for the highest price?

No, the lender does not need to sell the property for the highest price.

Under Ontario law, a lender selling a property under a Power of Sale must take reasonable precautions to obtain the property’s true market value at the time of the sale.[1] However, the lender does not have to achieve the perfect price as the law recognizes that selling real estate often involves judgment and is subject to market conditions. [2] Courts tend to give lenders some latitude in how the sale was conducted.[3]

In practice, this means:

• The best offer isn't always the highest offer: A lender isn't strictly required to take the highest bid if a lower offer has better terms (like a faster closing date or no conditions);[4]
• No perfect timing: The lender is allowed to sell the property at the time of their choosing; they don’t have to wait for a "hot" market or a better season to list the property;[5] and
• Market value vs. actual price: The lender must try to get the true value, but they aren't necessarily penalized if the final sale price is slightly under. [6]

What do Courts consider as reasonable precautions?

When determining whether a lender took reasonable precautions when selling the property pursuant to a Power of Sale, Ontario Courts consider, among others, the following factors:

1. did the lender exercise the power of sale in good faith?;
2. did the lender attempt to realize the true market value for the property?;
3. did the lender consider the interests of the borrower?;
4. was the property marketed widely?;
5. did the lender obtain appraisals?;
6. did and how did the lender advertise?
7. did the lender use a multiple listing service (MLS)?;
8. how long was the property on the market?[7]

Summarily, courts have found that lenders met their obligations where they employed competent appraisers and real estate brokers; had a “for sale” sign; advertised the property; listed the property on the MLS; rejected initial offers and made counter offers; made repairs to the property; and maintained the property by heating it and regularly inspecting the property to prevent vandalism.[8] A lender cannot engage in self-dealing, meaning it cannot sell the property to itself or a company it owns.[9]

Can a homeowner stop or contest a sale?

If you believe your lender didn’t take reasonable precautions and is selling your home for too little (often called an "improvident sale"), you have two main paths to contest the sale. Stopping or contesting a sale is usually an uphill battle.

Path A: The Injunction (stopping the sale before it happens)

A borrower can ask the Court to grant an injunction before the sale takes place. An injunction prevents the lender from selling the property. Courts rarely grant injunctive relief. The bar to be granted injunctive relief is very high, part of which involves demonstrating that the harm that would arise but for the injunction could not be compensated monetarily.[10] This would be a very difficult remedy to obtain and is uncommon.

Path B: Improvident Sale -- claim for damages (suing the lender after the sale)

Once an unconditional Agreement of Purchase and Sale has been signed, the property is deemed to be sold for the purposes of redemption, meaning the borrower no longer has the ability to bring the mortgage into good standing to retain the purchase property. As such, if the borrower believes that lender didn’t take reasonable precautions to obtain the true market value of the home, the borrower would need to bring a claim for improvident sale and claim damages, which would be the difference between the true market value and the purchase price actually obtained.[11]

Court will only intervene where there is extraordinary evidence of a defective sale process. [12] A homeowner’s mere dissatisfaction with the sale price is not enough to win a legal case—the lender must have breached its obligations owed to the borrower.  Courts have generally awarded damages to the borrower when the conduct of the lender was fraudulent or negligent and where the lender engaged in self-dealing. [13] 

Concluding thoughts

Ultimately, it is very difficult to challenge a Power of Sale. The onus is on the borrower to demonstrate that the lender breached its duty to take reasonable precautions to obtain the property’s true market value. Courts will typically only intervene in very serious circumstances.